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Monday, 4 November 2013

This is part 3 of Nick Drewe’s foray into a domestic eSourcing exercise for his house extension. Nick has now held all the site visits and chased in the quotes. Time for a spot of bid analysis to prepare for the contract award. You can catch up on part 1here and part 2 here.

Apologies for the delay in compiling part 3 of this eSourcing project. Amazingly over a month has passed since my last update, and what a hectic month it has been. I had scheduled in site visits with 20 builders over the period. 3 of the builders did not turn up, which presented itself as an easy method of establishing their reliability, or lack thereof, as it happened!

The remaining 17 appointments were conducted smoothly. I gave an extra bonus point to those who came with the drawings and specifications in hand: always good to prepare for a meeting to make best use of the available time. I couldn't resist the opportunity to ask them about their experience of using the Market Dojo eSourcing tool, which was thankfully overwhelmingly positive, despite a few of the guys needing to ask their siblings/cousin/mate if they could use their computer to access the internet!

Anyhow,
the quotes steadily trickled in. Some declined to quote due time
constraints or an unrealistic budget (we’ll see about that minute),
whilst some provided an entire bill of materials and profit and loss
account! The detail was astounding, literally right down to the last
screw.

Despite this professionalism, the difficulty I faced with this as a layman was that I was lost in the detail. I couldn’t see the wood for the trees. I almost preferred the quote that said “This quote includes everything in the spec, except we need you to buy the kitchen and sanitaryware.”

I mentioned there were a few objections to the budget, which for the record was circa £70,000 ex. VAT. After a fairly thorough market analysis I believe I have my defense on that, as here is the complete set of quotes I received:

There are a number of great things to witness here.

Savings! (in inverted commas)

I could have chosen to proceed with one of the two initial offers on the table from the architect, which I’ve termed the ‘incumbent’ bids. Perhaps I could even have negotiated 10% off through a classic face-to-face discussion. However I would not have been able to afford them in their entirety, so I would have had to make detrimental changes to the spec. by going back to the business and consulting with the key stakeholder, a.k.a. my wife!

However, with a 33% saving against the best ‘incumbent’ bid, on a like-with-like spec, we are now in a great position to secure the build that we want. As 33% equates to some £35,000, I can say without question that this exercise has been worth my time. Furthermore whichever outfit I do go with has such a good knowledge of what I’m looking for now that they can hit the ground running.

Finding market price

There is a clear trend towards the market price, almost like a flattened S-curve from the best bid to the worst. This gives me several affordable options, options I shall gladly exploit in part 4 of this exercise when I make my award of contract.

Engaging market forces

The two bids I received via my architect prior to embarking upon this sourcing project are undeniably the least competitive. I could argue this is because I ran my sourcing project on a professional level, creating an impersonal barrier between me and the market via the eSourcing tool, which in turn gives the builders the impression that I am not doing a half-hearted effort. Consequently this can encourage more competitive offers. Sadly neither of the previous ‘incumbents’ took the opportunity to quote again, so I can’t be certain.

It does illustrate that if you approach just a handful of suppliers in a liquid market, you have no assurances whether you have unintentionally approached the two towards the right of my graph or towards the left. As with any statistical analysis, you need to increase your sample size to increase your certainty. I feel that by approaching 90-odd builders, I have sufficiently achieved this. I could have invited or proactively chased more but I would then be at a greater risk of diminishing returns.

Either way, I don’t think practically that I could have achieved this without using the eSourcing tool. Furthermore it proves that you can achieve excellent ‘savings’ from a robust quotation process without the need to go to an eAuction. In this case an eAuction is not on the cards given that I’ll likely revise the spec to compromise on areas of low importance (the sun-tube seemed like a good idea at the time but a light-bulb would be £700 cheaper!) in order to maximise investment in the focal areas, e.g. the kitchen, now that we have our itemised costings.

Stay tuned for part 4 where I make the all-important assessment of both the price and non-price elements of the bids to reach the award decision.